Paragraph 8 is on the loan guarantees. They are available to foreign outfits and subsidiaries of foreign outfits operating in Europe provided certain conditions are met.

May be some would see that as an incentive then, from a purely market type of standpoint, to move funds into Euro-land.

“Some have said this Crisis is one of confidence. Others have said it's one of solvency.”

Can I try something here?

Say there are seven banks A,B,C,D,E,F & G.

A,B,C,D & E are (relatively) happy to lend to each other, but they don’t know that one of their number will lend to F or G, which they know (amongst themselves) are insolvent.

Will they now lend to F & G or will they (even with the guarantee) require an additional risk premium.

What happens to F & G if, even with the guarantee, they can’t borrow.

Instant bankruptcy?

In case you have missed. Paul Volker is interviewed by Charlie Rose:

http://video.google.com/videosearch?hl=en&q=rose%2C%20volker&um=1&ie=UTF-8&sa=N&tab=wv#

I guess we are about to find out who was right.

I shudder to think what happens next…if this does not spur more lending, as the message straight from the banks themselves will be:

We’re Insolvent!

The Market may hate uncertainty—but in this case, it may hate certainty even more.

I think this guarantee was an obvious solution; therefore, I think the reasons why they were hesitant to adopt it is also obvious.

I don’t think this is going to end well.

This is completely unjust. I would insist on massive dilution of the existing shareholders, before the capital injection by the governments. Plus all senior management removed from office. This is just a total sweetheart deal for the exact parties that caused the entire problem in the first place. A massive act of injustice.

I hope every politician that has anything to do with this is promptly voted out of office. Poor people being forced to bail out the rich and the powerful. And don’t tell me it was necessary to ’save the economy’, they could have saved the economy just fine without saving the shareholders and bank executives. These guys need to feel more pain, or it will be the same thing again 10 years from now.

The intent is to re-capitalize by injecting public funds into private banks. But doesn’t this take a while to materialize? Does the time for this re-capitalization really exist?

How does this change anything in the short term, other than its potential effects in beefing up confidence? Is it not obvious that we are passed that stage where attempts to beef up confidence are effective.

In other words, is it not obvious that the problem is no longer one of confidence (or distrust in terms of intrabank lending)? Is it not apparent by now that what matters is that which underlies the lack of confidence (and the psychology of distrust)? Is it not true that by now what really matters is that which is the real, material force driving developments . . . not simply mental configurations of confidence or lack thereof?

Attempting to beef up confidence, it appears the shift is to “guarantees”. Bank deposits guaranteed; intrabank lending guaranteed. So it has become a matter of governments as lenders of last resort, or only resort, because they are the only ones big enough to guarantee.

So . . . is the next issue one of sovereign solvency?

Certainly, everything I’m saying here is overly simplified. No doubt, I am missing what this is all about, for it just has to be much more substantive than it appears to these sore eyes.

“Under the current exceptional circumstances, financial and non-financial institutions should be allowed as necessary to value their assets consistently with risk of default assumptions rather than immediate market value which, in illiquid markets may no longer be appropriate.”

http://tinyurl.com/3kwvsj

refering to ue2008.fr